American comedian George Burns famously enjoyed an epic career that spanned vaudeville, radio, film and TV. In later life, despite exhibiting few signs of slowing down, he specialised in self-deprecating gags about getting old.
“Why should I retire?” he once asked. “I’m still making movies – and I’m a senior citizen, so I can see myself at half price.” He also quipped: “I was always taught to respect my elders, and I’ve now reached the age where I don’t have anybody to respect.”
AIM will chalk up its 30th birthday on June 19. Thirty is really no age at all, of course, yet there are plenty of party poopers who feel that London’s “junior” market is already over the hill and that its future is far from a laughing matter.
Such a view hardly tallies with the London Stock Exchange’s assertion that AIM is “the world’s most successful and established market for dynamic, high-growth companies”1. So which school of thought is more realistic?
Unsurprisingly, as a fund manager who invests in UK smaller companies, I am firmly in the latter camp – which is to say I believe AIM can still play a valuable role in portfolios. Let me explain why.
UK smaller companies’ renewed appeal
On June 19 1995, when it was launched under the name of the Alternative Investment Market, AIM was home to a grand total of 10 businesses. Each was small, ready to grow and in search of capital.
The number of listings today is close to 700. While this represents a notable increase on a quarter of a century ago, naysayers are quick to point out that almost 1,700 companies were listed on AIM in 2007.
There is no sugar-coating this fall. It reflects a broader decline in the UK’s global standing as a go-to listing destination. By contrast, the perceived pull of the US has been virtually undisputed in recent years.
Yet it is now widely accepted that the US’s lustre, in turn, has dimmed of late. The far-reaching fallout from President Trump’s trade policies has reminded investors that there is more than one market in the world.
This is not to imply that AIM is poised to welcome a sudden tidal wave of new businesses. Yet renewed recognition of the merits of looking further afield could prove in its favour as more investors re-embrace the quest for sensible diversification.
The enduring importance of high growth
Curiously, the UK government is arguably the biggest party pooper of all at present. The run-up to last year’s Autumn Budget put a sizeable dent in AIM’s performance, principally in light of intense speculation surrounding how the Chancellor might treat tax exemptions on shares.
Following weeks of uncertainty, the reliefs were halved. Yet that might not be the end of the saga. As scattergun efforts to plug the nation’s £40 billion “black hole” continue, Deputy Prime Minister Angela Rayner has reportedly urged the Chancellor to finish the job and scrap them entirely2.
Such shortsightedness conspicuously overlooks the fact that in 2023 alone, according to a study commissioned by the London Stock Exchange, AIM contributed £68 billion in gross added value to the UK economy3. This underlines that it remains a powerful engine of growth.
Encouragingly, pockets of high-level support persist. Emma Reynolds, the City Minister, is among those who fully appreciate the appeal of a market whose fundamental purpose is – and has always been – to give promising smaller companies access to ongoing finance.
AIM’s proponents also understand that smaller companies tend to outperform their larger counterparts over time and are usually more innovative. These may be key considerations in an era when marketplaces are becoming ever more crowded, when competition at the cutting edge is extraordinarily fierce and when household names are by no means guaranteed to deliver genuinely groundbreaking solutions.
Before they were famous
Speaking of household names, it is reasonable to suggest the majority of AIM companies will be unfamiliar to most investors. While some are well known – Jet2.com, a founding member in 1995 and still listed, is perhaps the most high-profile example – most are unlikely to resonate.
This does not mean, though, that they are not great businesses. More often than not, it simply means they are under-researched.
Both in the UK and elsewhere, most investment analysts pay little or no attention to smaller companies. They prefer to focus on bigger businesses, even though a sizeable array of opportunities can be found at the lower end of the market-capitalisation spectrum.
This is why a team like ours carries out its own in-depth research and direct engagement. Our job is to identify good-quality, attractively valued, high-growth companies that have the capacity to reward investors over the long term.
George Burns eventually lived to the age of a hundred. No-one can say if AIM might revel in similar longevity, but to write it off now seems at best precipitous and at worst ridiculous. Today, just as it was three decades ago, investing in smaller companies is no joke.
Eustace Santa Barbara is co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth and Nano-Cap Growth Funds.
